In any event, DeMello has been busy upgrading the verisimilitude of the original version (an uptick restriction for short-selling has been added, for example, and stop and limit orders are upcoming), and is considering exotic variations such as options, futures, and commodities. Hence the leap in '89's R&D budget (see financials, below). Again, big-name partners such as the Chicago Mercantile Exchange have expressed interest in joining in. Indeed, given more computing power and employee expertise, a player's options and futures portfolios might be linked to his equities portfolio, demanding intricate total-income solutions. Add to that the prospect of a worldwide market for a WSG game that is playable round-the-clock, dealing in securities of Japan and England as well as the United States, and growth possibilities seem endless.
But they're not. For one thing, 24-hour world trading would require 24-hour local service. Will low-paid employees be responsive -- or even show up -- at 2:30 p.m. Tokyo time? Won't players run up the WATS line trying to determine the difference between Matsushita and Mitsubishi? Even professional brokers are intimidated by trading soybeans and pork bellies, and as players surely would make more demands on WSG's services. Right now, DeMello calculates, the company can accommodate 48 terminals with 48 students each answering 250 phone calls a day. That's 12,000 "plays" all told, wedged in with utmost precision.
By now, dialing-for-fake-dollars habits have become predictable. A typical participant is very active his first month, moderately active the second and third, then eases off markedly. Right now, less than 10% of The Blue Chip Edition's 3,000 players call in each day, so total usage is barely two hours. Thus 98% of capacity is unused. Indeed, some periods are so dull that DeMello often sends the troops home early.
However, that pace should quicken once the cash award promotions hit WSG's trading floor. Each contest likely will strain services for three or four months running, which leaves DeMello a potential of only three sponsored promotions per year. Ironically, one presently in the works is a simulated-investment competition among real stockbrokers, bringing his concept full circle -- and possibly closing it.
EXECUTIVE SUMMARY
The company: Wall Street Games Inc., Wellesley, Mass.
Concept: A simulated stock market, enabling college students, financial-services trainees, and individual investors to play the securities game with mythical money
Projections: Profitable from start. Second-year sales of $2.1 million with pretax profit of almost $500,000
Hurdles: Picking the right market from among retail, academic, or training; creating demand beyond fad appeal; servicing uncertain volume
FINANCIALS
Wall Street Games Inc. projected operating statement
Fiscal Year Ending 9/30/88 9/30/89
Sales
Game sales $385,000 $1,875,000
Sponsor fees 75,000 250,000
Total sales 460,000 2,125,000
Cost of Sales
Game packages 40,000 140,000
Direct labor (service) 12,000 156,000
Toll-free phones 11,000 150,000
Monthly mailings 19,000 115,500
Postage and shipping 8,250 52,000
Sales commissions 12,500 125,000
Total cost of sales 102,750 738,500
Gross Profit 357,250 1,386,500
Operating Expenses
Payroll and related 162,000 197,000
Rent 54,336 61,128
Insurance 6,024 7,500
Equipment and furniture leases 39,840 72,000
Equipment maintenance 1,200 7,500
Quotation service 10,140 30,000
Stock-exchange fees 6,480 22,000
Advertising and promotions 20,000 250,000
Promotional awards 0 150,000
Telephone 4,600 8,800
Legal services 3,200 20,000
Professional services 8,500 18,500
Travel and entertainment 2,100 18,000
Research and development 5,000 25,000
Office supplies 1,500 3,500
Interest expense 3,100 22,000
Miscellaneous 2,500 6,000
Total expenses 330,520 918,928
Net Income Before Taxes 26,730 467,572
THE FOUNDER
Timothy A. DeMello founded Wall Street Games Inc. exactly six years after he was graduated from college with a B.S. in finance. In the interval he, along with thousands more young, upward-moving professionals, had managed to climb several rungs of the financial community's ladder. DeMello successively became a vice-president of Kidder, Peabody & Co., and of L. F. Rothschild, handling individual and institutional accounts -- just the ticket to a dull, seven-figures-a-year existence. Handily, by the time repercussions from the October crash thinned the ranks of other investment-banker aspirants, the personable and persuasive DeMello, then 28, had already departed Wall Street to develop and market his own less hazardous version of it. By then, he had learned his own lessons well. Most of the capital for the venture came from former clients and fellow brokers; DeMello threw in a mere $20,000, signed a debt instrument to secure another $50,000, and kept 86% of equity in the company for himself.
WHAT THE EXPERTS SAY
CUSTOMER
RALPH KIMBALL
Lecturer, Babson College, Wellesley, Mass. Uses WSG's The Blue Chip Edition in course on securities analysis
